Real Estate: Solutions for Supply and Demand

According to the economic fundamentals, a firm must be responsible for its own business operation; if a firm maintains a good business status, it will have more opportunities to extend business operation and if not, it will bear the risks. However, such fundamentals, if applied in the real estate sector, will present difficult to the majority of real estate businesses. Many highlighted that if real estate firms are left to tackle their own business problems, there will be a collapse of related industries such as finance, credit and construction materials, causing significant impacts on the whole economy.

 

According to the Ministry of Construction of Vietnam, the upcoming macro-economic measures will help revive the real estate sector and accordingly, contribute to growth of other industries through service packages that meet actual demand and provisions of credit solutions, taxes, fees and procedures to stimulate demand.

 

Many market solutions have been launched during the past, but they have not significantly slowed the downward trend of the market. Particularly, the core problem relating to market outcomes has not been solved. Since then, the real estate firms have been waiting for the reimbursement of the VND30 trillion loans to low-income people to rent and buy social housing. This is known as a good signal for property market.

 

According to many real estate experts, the bailout package worth several billions of Vietnamese dong is unremarkable. During the past few years, many real estate firms have raced into hundreds of construction projects, leading to an out-of-control property market. Therefore, the government bailout package aims to gain public trust that money will be poured into social housing rather than directly to real estate firms.

Mr Dominic Patrick Mellor, an economic expert from the Asian Development Bank, said that the government would rather encourage businesses to solve their own problems than bail out them. Businesses that cannot solve their own problems will suffer the consequences. The government bailout package should be reserved for those with low incomes, to ensure social security.

 

Real estate plays an important role because it provides outputs for construction materials and decoration. It is a special good for its interoperability with other markets and ability of meeting basic needs for housing. Therefore, the government cannot leave it alone in free-fall or self-development.

 

Real estate is now contributing 10 percent of GDP (or up to 20-30 percent for many countries in the world). Most real estate firms should not be considered "grabbers" because many of them are running businesses seriously and sustainably. A rising concern is that the capacity of the enterprise is limited. The enterprises in the South are facing more difficulties than those in the North because they made more bank loans. Approximately 50 percent of the country's real estate loans are in the south, while the north accounts for less than 20 percent.

 

How to solve the business problems? The government would rather lay out a good platform for businesses to develop and to gain public trust than giving money directly to support businesses. The government should focus on social housing as a good solution for real estate industry. Indeed, there is imbalance of supply and demand; one side is in housing trade surplus while other side lacks social housing. Therefore, the real estate companies should switch their businesses to social housing or split properties into slots for sale.

 

It is necessary to come up with solutions to save supply and demand in property market.

 

In fact, housing prices in 2010 has increased 10 times compared with 2000, and increased by 4 times compared with the increase in per capita income in Vietnam. Will measures taken to reduce price for demand stimulation to motivate businesses to reduce land price to the value in 2000? It is impossible. The government should have a comprehensive and sustainable solution to save supply and demand. Given that, the ministries should propose a final plan to the government to save the property market. Up to now, many businesses are in debt but stuck in uncompleted projects. This requires a monitoring and evaluating system for interest incentives. If not, the market will be bogged down in the "quagmire".

 

He agreed to leave the real estate market in free fall and the government just intervenes in property market only when the whole economy was impacted by the real estate. In Vietnam, the financial market today is posing challenges to real estate market; however, the real estate market has not caused any big trouble for financial markets and the economy. The bubble market is the main cause of frozen property market, but the market could adjust itself without any support. The Economic Committee of the National Assembly agreed not to bail out the market but leave it alone for self-adjustment. Like playing a game, the investors gain profit from upward market but lose money from downward market. Under the economic downturn, the government could support businesses by extending payment due dates for land use and corporate tax. However, this is another story, apart from a "bail-out" for businesses.